A rare early start to the day - brings this thread from the close of the "Bad Audit" as it veers into a somewhat different subject.
One of the results of this mass reclassification into employee status "for all recipients no matter what" is the effect on W-2s, and Federal tax reporting for those whose records are being changed.
Since the audit, I have acquired a copy of the audit manual in use by the Tennessee Dept of Labor. It's no wonder the auditor is as bad as she is, and I made the same statement about her supervisor (normally an option for appeal). Simply put, there is no realistic connection between what they look for and the IRS criteria published in Pub 15A. One board member commented that a reclassification for state purposes does not equate to a reclassification for federal purposes. And with the criteria being so drastically different, one would tend to agree. TN will not admit to using different criteria, but their application of the rules is totally one-sided.
My question, however, is how can you classify an employee for state purposes, issue a W-2, and maintain non-employee status on his federal return? Can the payer avoid this by simply not issuing a W-2 and a corrected 1099? I believe the state can change their own records, but would be surprised if the state went to the trouble to issue a W-2 themselves.
Another question for the "sharing-of-information" between state and federal gubbermints: There is a reconciliation performed somewhere between the Federal 940 and the SUTA returns. Although I am not intimately knowledgeable about how this is done, I do know that there is an effort made to track down people not reporting to one authority or the other. Would this reconciliation reveal a reclassification made at the state level but not at the federal?
If anyone has experience with this type of thing, I would love to hear from you. I went through a similar audit years ago, but on that one I agreed 100% with the auditor, and complied to make the federal side consistent.
By-the-way, the newest objective of these SUTA audits is no longer to collect SUTA revenue. It is to identify persons whom if an employee would provide a collection track for the state to recover child support. Regardless of how worthy or politically correct this may be, there should not be a distortion of federal application without separate Tennessee legislation.
One of the results of this mass reclassification into employee status "for all recipients no matter what" is the effect on W-2s, and Federal tax reporting for those whose records are being changed.
Since the audit, I have acquired a copy of the audit manual in use by the Tennessee Dept of Labor. It's no wonder the auditor is as bad as she is, and I made the same statement about her supervisor (normally an option for appeal). Simply put, there is no realistic connection between what they look for and the IRS criteria published in Pub 15A. One board member commented that a reclassification for state purposes does not equate to a reclassification for federal purposes. And with the criteria being so drastically different, one would tend to agree. TN will not admit to using different criteria, but their application of the rules is totally one-sided.
My question, however, is how can you classify an employee for state purposes, issue a W-2, and maintain non-employee status on his federal return? Can the payer avoid this by simply not issuing a W-2 and a corrected 1099? I believe the state can change their own records, but would be surprised if the state went to the trouble to issue a W-2 themselves.
Another question for the "sharing-of-information" between state and federal gubbermints: There is a reconciliation performed somewhere between the Federal 940 and the SUTA returns. Although I am not intimately knowledgeable about how this is done, I do know that there is an effort made to track down people not reporting to one authority or the other. Would this reconciliation reveal a reclassification made at the state level but not at the federal?
If anyone has experience with this type of thing, I would love to hear from you. I went through a similar audit years ago, but on that one I agreed 100% with the auditor, and complied to make the federal side consistent.
By-the-way, the newest objective of these SUTA audits is no longer to collect SUTA revenue. It is to identify persons whom if an employee would provide a collection track for the state to recover child support. Regardless of how worthy or politically correct this may be, there should not be a distortion of federal application without separate Tennessee legislation.
Comment